By Max Clarke

Will Hutton, current head of the Work Foundation, has today published his Fair Pay review in which he proposes an overhaul of the public sector pay system, in which pay is more closely linked to performance. Under this system, executives will have an element of their basic pay 'at risk’; to be earned back each year through meeting pre-agreed objectives. This will allow pay to vary down as well as up with performance, and ensure that public services do not offer rewards for failure.

"High quality public services are essential to our society and economy and high quality public services require high calibre leaders to deliver them, especially in difficult fiscal conditions.” Will Hutton.

Brenden Barber, General Secretary of trades union giant, the TUC, reservedly welcomed the review: "This review makes a range of challenging proposals for change in the public sector, including greater pay transparency at the top. But crucially it is also a welcome starting point to tackle the greatest unfairness - boardroom excess in the private sector."

"But," continued Barber "the millions of public servants facing real terms pay cuts and pension hikes will be disappointed that the review has so little to say about low pay in the public sector."

Continued Hutton: “How we pay our public service leaders will have a crucial influence on the sort of public services this country will get. It is essential that senior public servants are adequately rewarded for their contributions, and that the public service ethos - that sense of mission and public duty that motivates many to work in public services - is preserved and respected. But public trust in public services can only be maintained if senior public servants' pay is fair and seen to be fair."

Katja Hall, Chief Policy Director at the Confederation of British Industry commented on Will Hutton’s review, saying:

“The Government was right to ask Will Hutton about senior public sector pay. His central suggestion that more senior public servants’ pay should be performance-related is welcome.

“But we must be careful about judging pay fairness by a single number, like the ratio of executive to median pay. While Hutton is right that there should be more transparency and understanding about how pay is set in the public sector, a single ratio can be misleading. Differences in the sizes and make-up of workforces lead to a variety of pay differentials based on very valid grounds.

“It is right that shareholders decide how pay is set. In the public sector this means it is for government to decide what the standards are.

“In the private sector, however, remuneration committees are responsible to shareholders. Shareholders not the Government should decide how to split the pay budget in a way that gets the best results, and this includes firms delivering services on behalf of government.”

Recommendations in Mr. Hutton’s Review included:
* There should be significant improvements in transparency over senior pay - all executives' full pay should be disclosed, along with an explanation of how it relates to job weight and performance and made available online.

* The multiple of chief executive to workforce median pay should be published each year, and any changes explained.

* The Government should not benchmark senior public servants' pay against that of the Prime Minister, and should not impose a fixed limit on pay multiples (such as 20 to 1). This will allow a more informed and rational public debate on senior pay in public services. Citizens need to understand public service executive pay in the context of job responsibilities. To support this informed debate, the Senior Salaries Review Body should publish Fair Pay Reports each year, detailing pay multiples across public services.

* To make tracking pay multiples normal practice across the economy, Will Hutton recommends that Public Limited Companies (PLCS) should also be required to track and publish their pay multiples - and the Government should consider commissioning annual Fair Pay Reports on PLCs as well as public service organisations.